Mediation in Investor-State Disputes: An Alternative to Arbitration?

Investor-State Dispute Settlement (ISDS) has long revolved around arbitration, which, despite its widespread use, faces mounting criticism for cost, duration, legitimacy and its impact on public policy. This paper explores whether mediation can serve as a sustainable alternative (or complement) to arbitration in ISDS. It traces the evolution and critique of investor-state arbitration, presents the concept and advantages of mediation in the investor-state context, examines recent institutional developments — particularly by the International Centre for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL) — and assesses the challenges and limitations of mediation in this field. The paper then argues for a hybrid model combining mediation and arbitration as a pathway to more sustainable ISDS, and concludes with recommendations. The analysis finds that while mediation holds significant promise in terms of cost, flexibility, relationship-preservation and sustainability, its current utilisation remains limited and institutional reform is required for it to become a viable mainstream alternative or complement to arbitration.